Rental demand in Portland is through the roof

May 2, 2013 in Articles

The city hopes to see at least 800 more apartments built as demand forces up rents

When Eva Bradford and her boyfriend began looking for an apartment in Portland's West End a few months ago, they didn't think the search would be that difficult.

Bradford, a 26-year-old medical student, and her boyfriend, a financial analyst, have a good rental history with references, a clean credit score and cash to pay the move-in costs upfront.

"We thought that would be a shoo-in for finding the right place," Bradford said.

But it hasn't been. The Biddeford couple is looking to relocate at the end of May, but they have to fight swarms of other prospective tenants just to view available apartments. They're even stretching their budgets to expand their housing options.

"We've contacted a lot of different landlords," she said. "We just don't get calls back."

Such is the state of Portland's rental market, where vacancy rates have dropped from 7.5 percent to roughly 2 percent over the last five years and the average monthly rent for a two-bedroom apartment has risen from $850 to $1,050 over the last four years, according to landlord surveys. Current online listings show that rents are climbing even more in 2013.

The Portland rental market has been a hot topic, with the proposed "midtown" development poised to add 190 market-rate units in Bayside in the short term and 675 over a 10-year period, units that the project's developer argues are crucial to the city's future.

Whether the Portland rental market is truly as tight for tenants as surveys indicate, and how the market will be affected by the Bayside project, depends on whom you ask.

"I've been successful placing everyone," said Michael Smarc, a local rental agent who manages more than 75 units.

There are more than 17,000 rental units in Portland, according to Mary Davis, the city's housing director. Nearly 11,000 of those are on the peninsula.

The Maine Real Estate Development Association partners with real estate companies annually to collect rental information through landlord surveys. According to those surveys, vacancy rates have fallen drastically since the onset of the recession.

In 2007, landlords reported vacancy rates at roughly 7.5 percent. Those rates dropped to between 1 percent and 3 percent in 2012.

That's much lower than the rates beyond Greater Portland. Saco and Biddeford landlords reported a 10-15 percent vacancy rate last year, while those in Lewiston and Auburn reported a 15 percent vacancy rate.

Meanwhile, rents in Portland are rising along with demand. In 2008, landlords reported the average monthly rent for a two-bedroom apartment as $850. Last year, they reported the average monthly rent was $1,050.

A quick review of apartment listings online, however, shows a more drastic increase. On April 26, the asking rent for a top-floor, two-bedroom apartment with laundry and parking in the West End was $1,750, and a two-bedroom apartment in the East End was listed for $1,325.

Demand for rental units increased as the housing market crashed in 2008, when people lost homes to foreclosures and lending for new buyers was tight, said Harper Lee Collins, a Re/Max Realtor.

Collins said the housing market has recovered in Maine, with current inventories being lower than they were in 2005. Property owners who rented their homes out of necessity are suddenly able to sell them, putting renters back into the market. That is still feeding the rental demand in Greater Portland, Collins said.

Maine's housing market recovery mirrors a national trend. Last December, there were about 1.8 million homes on the market, according to the National Association of Realtors. That's a little more than half of the 3 million homes that were on the market in December 2010.

As a Realtor, Collins focuses mostly on home sales, but she is often asked about rentals in Portland. She usually refers prospective tenants to Portland rental agents with a key piece of advice.

"I tell them to be a bulldog on a pant leg to get help," she said. "It's very tough out there right now."

Brit Vitalius of Vitalius Real Estate Group owns 20 rental units in Portland. When a West End studio apartment opened up, Vitalius said he had no problem finding a qualified tenant. In fact, he had too many.

He recently showed the studio to eight prospective tenants over the course of an hour. Six were qualified and would have made great tenants, he said.

Rather than draw a name from a hat, Vitalius went with the first person to apply, because she knew someone in the building and promptly provided a check. The 180-square-foot studio, the equivalent of a 12-by-15-foot room, was rented for $695.

"I probably could have asked for more," Vitalius said. "I wish I had more units."

Greg Shinberg is the local consultant for Miami-based Federated Cos., the "midtown" developer.

Shinberg sees a demand for new, market-rate housing in a city with an old housing stock. He has seen the demand for new market-rate units first-hand as part-owner of 645 Congress St. The 56-unit building has been full since the fall of 2010, six months after it opened, he said.

"There is still quite a bit of pent-up demand in Portland," Shinberg said. "There is just a funky cool to (Portland) that people enjoy."

The city has made increasing housing options a priority. A 2002 housing plan called for the creation of 3,000 new housing units in the city, with a goal of having 25 percent of the total number of housing units in Cumberland County.

The city has held steady at 24 percent of the units in the county, even though 1,949 units, including 912 rental units, have been added in the past decade, Davis said.

The city has invested $7 million to help create 672 of those units, Davis said.

Meanwhile, the city's housing plan calls for the full implementation of the Bayside vision of adding 800 units over five years with an eye toward three-bedroom rental units for families.

Shinberg said Federated is still working out the details, such as square footage and number of bedrooms, for the 675 units envisioned over the next decade.

The first phase of 190 units in a 165-foot-tall tower is expected to get under way later this year and will help alleviate the demand, he said.

But real estate professionals offered different assessments of the project's prospects for success and its impact on the local market, which is driven by young professionals and empty-nesters.

Collins said the developer needs to build units that are at least 1,200 square feet with in-house laundry to be successful.

But Vitalius, the president of the Southern Maine Landlord Association, said many of his prospective tenants are young "hipsters" who want to live in a two- or three-story building. High-rise apartments, like those planned in midtown, could push the apartments out of reach for many people looking to move to Portland, he said.

"It's going to be completely different than the units people are looking for," Vitalius said.

Some real estate professionals believe the rental market will cool down as the housing market heats up, but Shinberg said demand will always be high here.

"Portland is kind of a unique experience," Shinberg said, noting the coastal city's trails, restaurants, arts scene and its walkable neighborhoods. "(And) there are people who don't want the risk of ownership."